Fusion of Short-term and Long-term SCM
Strategies -The Case of Seven
Eleven Japan-
Toru Higuchi[[email protected]]
School of Business and Public Administration at Sakushin Gakuin University, Tochigi, Japan.
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Purpose of Research•Highlight the Importance of Long-term SCM Strategy• Finding a Hint to Make a Long-term SCM Model
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Competitive Advantage
SustainableCompetitive Advantage
ChangeableDynamic
Short-term SCM
Long-term SCM
Background of ResearchDifferences of Short-term SCM and Long-term SCM
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SCMShort-term Long-term
Static DynamicRigid AmbiguousQuantitative QualitativePartial GlobalPractical TheoreticalOperational Strategical
Case Study: Seven-Eleven Business in Japan
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• In 1973, Ito-Yokado established York Seven Co., and concluded an area service and license agreement with Southland Corporation. • A first Seven-Eleven store in Japan opened in May, 1974.• Seven-Eleven Japan, a franchiser, organized a huge number of
franchisees and achieved a great success.• Japanese consumers visit Seven-Eleven stores very often to buy
fresh foods and other products.• Southland Corporation became a wholly owned subsidiary of
Seven-Eleven Japan in 2005. • Seven-Eleven Japan established a joint company, SEVEN-ELEVEN
(BEIJING) Co.., LTD. in 2004 and SEVEN-ELEVEN CHINA Co., Ltd. in 2008.
RANKING of Retail Dealers in Japan
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Sales(FY 2014) Ordinary Profit(FY 2014) Current Price(as of 30 Dec. 2015)
1 AEON7079 Billion Yen
Seven & i Holdings341 Million Yen
Seven & i Holdings4920 Billion Yen
2 Seven & i Holdings6039 Billion Yen
AEON153 Million Yen
Fast Retailing4523 Billion Yen
3 YAMADA DENKI1664 Billion Yen
Fast Retailing135 Million Yen
AEON1629 Billion Yen
4 Fast Retailing1383 Billion Yen
Lawson72 Million Yen
NITORI1171 Billion Yen
5 ISETAN MITSUKOSHI1272 Billion Yen
NITORI68 Million Yen
Lawson988 Billion Yen
Source: http://www.nikkei.com/markets/ranking/index.aspx
Dramatic Japanese Lifestyle Changes by Seven-Eleven
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1) Convenience: “Close and Convenient” is their slogan. Seven-Eleven stores are located near the customers and allow them a convenient shopping and other services.
2) Business Hours: In 1970’s, most stores including the super markets were open at 10:00 am and closed at 6:00 pm. Most Seven-Eleven stores started 24 hour operation in 1975.
3) Eating Habits: Most Japanese people made the rice products, such as Onigiri and Obento, by themselves. Seven-Eleven Japan succeeded in commercializing these products.
Financial Performance of Seven-Eleven Japan
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Three main drivers of Seven-Eleven’s Business
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1. Effective Assortment (Wide and Flexible)2. Efficient logistics system (High Service Level and Low Cost)3. Useful Collaborative Information System
Raw Materials
Parts or Unfinished Goods Finished Goods
Makers or Wholesalers
Distribution Centers
Stores
1. Effective Assortment
2. Efficient Logistics System
Customers
3. Useful Collaborative Information System
Seven-Eleven Stores Total Sales
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Combined Distribution Center
POS System
Onigiri
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Deliver Fresh Food Three Times a Day
Assortment of Seven-Eleven Stores in Japan
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• An average store owns the laying in of stock, about 2800 items.• The fresh foods are the mainstream of sales.• The line of products is so changeable that 70% of products are
replaced within a year.• Most products are sold without a discount.• The more than half of items are Seven-Eleven’s private brand.
Wide and Flexible AssortmentFresh Food
(28.5%)Process Food
(25.9%)Non-Food
(32.7%)Daily
(12.9%)
Handling with Special Care
Foundation of Wide and Flexible Assortment
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• Recommended Line of Products; Seven-Eleven Japan prepared for about 4800 items.
• Decision Making Support System;Store owners should make a decision on the selection and a quantity of each product by themselves.
• Combined Distribution Centers;Seven-Eleven Japan built distribution centers and started collaboration with their vendors.
Seven-Eleven Japan
Recommended Line of Products
Makers and
Vendors
Variety of Products
Private Brand
Products
Stores Stock in Products
Effect of Combined Distribution System
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• Reduction of Delivered Trucks to Each Store; In starting up, 1974, the items were delivered to the first Seven-Eleven store by 70 trucks a day.
• Labor and Space Saving;A store received and inspected all items put in a box or case. After that, the products put in a warehouse were picked up and placed on the shelves.
Box ⇒ [Pieces] Small Warehouse(Space Saving)
Less (Un)Loading, Storage, Inventory
Management(Labor Saving)
Seven-Eleven Stores Total Sales
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Dominant Strategy
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• Dominant strategy is the base of “Close and Convenient”.• Seven-Eleven Japan implements high- density, concentrated store
openings, in a certain area and period.• As a result of the dominant strategy, Seven-Eleven Japan can increase the distribution efficiency,
the sales promotion,the store operation consultation efficiency.
• The truck and driver’s working ratio increase.
• The total Sales in the area increases.
• The operation consultants can visit many stores easily.
Omni Channel
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• Seven-Eleven Japan has been expanding the dominant strategy.• As a result, Seven-Eleven stores are everywhere in Japanese towns.• Seven-Eleven Japan arrived a stage for “Omni Channel” business.• It allowing customers including partner companies customers to access to products what they want, anywhere and any time, via smartphones and tablets.
No. Stores
Economy of ScaleBandwagon Effect
Big Store Network Omni Channel
EC
Working Ratio
Strategic Alliance with other companies which deal with quality goods, baby goods, books, travels and etc.
Seven-Eleven Japan’s Business from the Flow of Products
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Raw Materials
Parts or Unfinished Goods Finished Goods
Makers or Wholesalers
Combined Distribution
CentersStores
Customers
Set recommended Line of Products
Consign goods for safekeeping and shipping
Franchise Agreement
Seven-Eleven Japan
Organize a business model and information system
Seven-Eleven Japan’s Revenue
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Raw Materials
Parts or Unfinished Goods Finished Goods
Makers or Wholesalers
Combined Distribution
CentersStores
Customers
• Commission (the buying power)• Center Fee(business practice)
Difference between a center fee and a consignment fee
Royalty (Sales)
Seven-Eleven Japan
Product Life Cycle SCM Model
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INTRODUCTION GROWTH MATURITY DECLINE
Sales Amount
Time
Time
Sales Per Store
Time
No. Stores
Product Life Cycle SCM Model
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Sales Increasing Factors Decreasing FactorsMarketing Effective 3p(Product, Price and
Place), Recognition Rate, Brand Royalty, Changing Life Cycle and etc.
Intensity of Competition, Threats of New Entrants & Substitution, Power of Suppliers & Buyers, Cannibalism
Short-term SCM
High Service Rate, Efficient Logistics, Decision Support System
Long-term SCM
Joint Research & Development, Dominant Strategy, Design and Advance of Information System
Time
Sales Per Store
Epoch-making events or innovations
Product Life Cycle SCM Model
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Time
No. Stores
No. Stores Increasing Factors Decreasing Factors
Marketing Sales Per Store, Recognition Rate, Brand Royalty, Changing Life Cycle and etc.
Intensity of Competition, Power of Suppliers & Buyers, Threat of New Entrants & Substitution, Cannibalism
Short-term SCM
Reliable and efficient Delivery,Decision Support System
Long-term SCM
Dominant Strategy, Placement of Distribution Centers, Omni Channel
Product Life Cycle SCM Model
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GROWTH-Effective Assortment -Distribution System-Information System
MATURITY-Dematurity-Improvent
Sales Per Store
No. Stores
INTRODUCTION-Recognition Rate-Trial & Error
DECLINE-Rivals-New Entrants-Substitute-Strong Power of Suppliers-Strong Power of Buyers
Start
Simple Hypothetical ModelAssumptions• The effect of innovations can be expressed numerically, .• Innovations can increase an upper limit, a potential demand.• All innovations diffuse at the same speed.• In the convenience store industry, the effect of innovations can be
accumulated.• Innovations in rival industries can rob a potential demand of the
convenience industry.
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Potential Demand
Time24 Hour Convenience Store Operation
Omni Channel
Fresh Food Service
Obento Shops
EC
Assumed Sales Progress Based on the Logistics Curve
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Set of Model
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A Chain Stores RivalsSale(1) Sale(2) Sale(3) Sale(4) Sale(5)
Start Beginning 3rd Year 9th Year 11th Year 18th Yeark= 5,000 8,000 10,000 1,000 9,000
m= 100λ= 1
Note
An Initial Innovation; such as 24 hour store operation.
Additions; such as fresh foods based on the combined distribution system.
Additions; such as an omni channel
Substitutional Innovations; such as obento chain.
Substitutions;Such as an electric commerce.
Assumed Net Sales Progress Subtracted Rivals Sales
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Conclusion• SCM includes the short-term , operational, SCM and the long-
term, strategical, SCM.• SCM can create or accelerate the innovations and change the
lifestyle.• Seven-Eleven combines the short-term and the long-term
SCM and succeeds in changing the lifestyle a few times dramatically.• It is very difficult to create a long-term SCM model because it
is dynamic and ambiguous.
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